Momentum continues across key franchises

ROVI Laboratorios Farmaceuticos 11 November 2020 Update
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Laboratorios Farmacéuticos ROVI

Momentum continues across key franchises

Q320 results

Pharma & biotech

11 November 2020

Price

€34.6

Market cap

€1,940m

$1.19/€

Net debt (€m) at 30 September 2020

38.1

Shares in issue

56.1m

Free float

31%

Code

ROVI

Primary exchange

Madrid

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.8

26.7

40.7

Rel (local)

(2.8)

15.9

71.3

52-week high/low

€36.80

€20.30

Business description

Laboratorios Farmacéuticos ROVI is a fully integrated Spanish speciality pharmaceutical company involved in developing, manufacturing and marketing small molecule and speciality biologic drugs, with expertise in low molecular weight heparin. Its pipeline of drugs is focused on its proprietary ISM technology.

Next events

DORIA US NDA filing

Q420

DORIA EU approval

Q121

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr John Priestner

+44 (0)20 3077 5700

Laboratorios Farmacéuticos ROVI is a research client of Edison Investment Research Limited

Reported 9M20 numbers highlight continual strength in sales across key franchises and ongoing margin expansion. ROVI reported operating revenue of €302.1m (+12%). Within the low molecular weight heparin (LMWH) franchise (+26% to €157.7m), biosimilar enoxaparin (Becat) performed strongly, while the toll manufacturing division (+38% to €62.7m) benefited from the redirection of strategy to high value-added products. EBITDA increased 47% to €69.7m in 9M20, reflecting lower R&D costs and increasing operational leverage. ROVI has given guidance for FY21 of mid-single-digit growth in total operating revenues (excluding the manufacture of Moderna’s COVID-19 vaccine candidate). The US NDA filing for DORIA is expected in Q420, and in Europe we expect approval and launch in 2021. We value ROVI at €1.57bn.

Year end

Revenue*
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

304.8

19.2

0.38

0.08

91.1

0.2

12/19

382.5

45.6

0.77

0.18

44.9

0.5

12/20e

402.6

63.3

1.03

0.24

33.6

0.7

12/21e

426.5

54.5

0.88

0.20

39.3

0.6

Note: *Total revenue includes government grants. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

LMWH sales momentum continues

Sales of LMWHs Becat and Hibor increased 25% to €153.1m; sales have benefited from increased heparin use for hospitalised COVID-19 patients offset by fewer elective surgical procedures. Becat (+45% to €76.6m) continues to benefit from the ongoing roll-out in Europe by ROVI and its partners and we have increased our Becat sales forecast to c €100m in FY20. ROVI has maintained FY20 guidance of mid-single-digit growth in total operating revenues.

Toll manufacturing growth in high value-add products

ROVI has increased guidance for toll manufacturing revenues to 20–25% growth (from high double digits) in FY20; we now forecast 25% (from 18%) growth in FY20 in this division given better visibility on contracts. The Q220 collaboration agreement with US-based biotech Moderna to provide fill-finish manufacturing for its COVID-19 vaccine candidate outside the US could provide upside in FY21 if successful, depending on the undisclosed terms of the deal.

DORIA 2021 catalysts ahead

Marketing authorisation for DORIA (risperidone ISM) in Europe is expected in Q121; we continue to forecast launch in Europe in 2021. The US NDA filing for DORIA is still expected in Q420. We also await publication of the full PRISMA-3 data at a scientific congress next year to give further insight into DORIA’s profile.

Valuation: €1.57bn or €28.1 per share

Our revised valuation of €1.57bn or €28.1 per share (€1.64bn previously) reflects the impact of FX and lower expectations for mature products from FY21. We increase FY20 Becat and toll manufacturing sales forecasts slightly. Our valuation is underpinned by Becat’s strong growth potential, while the opportunity for DORIA in the US and EU is key, contributing 26.4% to our valuation.

9M20 financials: Strength in numbers

ROVI’s results for the first nine months of 2020 (9M20) demonstrated substantial growth in its LMWH franchise and toll manufacturing business, driving a 12% y-o-y operating revenue increase to €302.1m. ROVI has maintained its FY20 revenue growth guidance of mid-single-digit growth, but has revised its guidance upward for growth in its toll manufacturing business to 20–25% from high double digits. ROVI has now issued FY21 guidance at mid-single-digit growth in operating revenues, excluding any contribution from the Moderna COVID-19 deal. We believe this is on the conservative side given the momentum in Becat sales and increasing potential for Moderna’s mRNA-based vaccine (given read across from the preliminary data of efficacy of >90% from Pfizer and BioNTech’s mRNA vaccine candidate BTN162b2).

In 9M20, revenues from the LMWH franchise grew 25% y-o-y to €153.1m (9M19: €122.6m), as shown in Exhibit 1. The strong uptake of Becat (+45% to €76.6m) has increased ROVI’s LMWH franchise significantly; it represented 52% of operating revenue in 9M20 (vs 46% in 9M19). Becat is now available in 18 countries worldwide (it is approved in 26 countries in Europe and 15 in RoW), and additional roll outs are expected in 2021. Hibor’s (bemiparin) international (ie outside of Spain) sales grew 43% to €26.1m (9M19 €18.2m), benefiting from higher transfer prices to some partners related to the increase in raw material costs, offsetting a 2% decline in sales in Spain to €50.4m (9M19: €51.5m), which saw a greater impact from the reduction in the number of elective surgical procedures performed during the COVID-19-related lockdown. Within the speciality pharmaceutical portfolio (ex-heparins), Neparvis sales increased 42% to €21.6m, while mature franchises (cholesterol treatments and respiratory drugs) continued to decline. Sales of contrast imaging agents and other hospital products declined 9% to €22.1m in 9M20, reflecting the reduction in diagnostic testing during lockdown (Q3 rebounded to +26% from Q220). Our revised sales forecast for 2020 is €402.6m (+5.3% vs FY19) and we have made minor upgrades to heparins, notably Becat sales, and have lowered the discount to the NHS to be in line with the 9M20 reported figure.

Exhibit 1: LMWH franchise quarterly performance

Source: Laboratorios Farmacéuticos ROVI accounts, Edison Investment Research

Toll manufacturing revenues increased by 38% to €62.7m in 9M20, driven by a focus on sales of high-value products. We note that ROVI did not book any Moderna COVID-19 vaccine-related income in Q320. ROVI has started initial preparation work for COVID-19 vaccine production under the agreement with Moderna and expects to start booking income related to these activities in Q420. We have revised our forecast toll manufacturing revenue upwards to €82.1m in FY20 (vs €77.5m previously) to reflect sales evolution so far this year and the revised guidance.

EBITDA increased to €69.7m (+47%), reflecting significant operating leverage, 0.1% improvement in gross margin and a 27% reduction in R&D spend (€15.6m in 9M20). R&D expenses will fluctuate from quarter to quarter as the reducing requirements for DORIA (lower Phase III costs, but regulatory filing costs and development of a three-monthly injection formulation are ongoing) are offset by increasing investment in Letrozole ISM. R&D expenses are expected to decline by 15–20% in FY20, and we have reduced our R&D forecast very slightly (€1m) to reflect guidance. We have also reduced our SG&A forecasts for the year by c €3.4m to reflect reported spend in 9M20. Our revised FY20 EBITDA is €79.9m versus €70.9m previously.

ROVI has provided operating revenue guidance of mid-single-digit growth for 2021; we now forecast 5.9% growth in FY21 versus 13.9% previously. We have increased our forecast Becat and toll manufacturing revenues and offset this with a greater decline in Hibor and the mature product sales expectations. We have adjusted our estimates to consider guidance but believe our revised forecasts to be conservative and expect to upgrade them during FY21. The revised sales forecasts for FY21 have led to a decrease in forecast EBITDA for FY21 to €71.7m from €78.2m. We have revisited our operating cost assumptions for FY20 and now forecast an operating margin improvement in 2020 to 15.0% (from 11.2% in 2019). We expect the margin to decline slightly in 2021 (to 12.1%), reflecting SG&A investment in international subsidiaries to support the DORIA launch, offset by lower R&D expenses. We expect steady margin growth in 2022 and beyond, mainly due to operational leverage.

Valuation

Our adjusted valuation of ROVI is €1.57bn or €28.1 per share, versus €1.64bn previously (Exhibit 3). The major impact is FX on DORIA sales forecasts (which originate in US dollars in our modelling assumptions), but we have also made slight downward adjustments to the mature product portfolio expectations in FY21 with an impact on the later years. We make minor changes to our FY20 product forecasts (increasing Becat and toll manufacturing sales) and have nudged R&D down slightly, which has positively affected forecast operating profit for 2020. In addition, we have rolled forward our DCF/rNPV model and include net debt of €38.1m at 30 September 2020. We value DORIA in the US and EU using a standalone NPV calculation (Exhibit 4) and derive value for the rest of the business using a DCF of our sales and P&L model excluding DORIA (Exhibit 2). Our DORIA valuation has been affected by FX, as our sales across both territories are denominated in US dollars and translated into euros. Our valuation is underpinned by Becat’s strong growth potential, while the base business remains stable with low single-digit growth rates. The opportunity for DORIA in the US and EU is key, contributing 14.3% and 12.1% to our valuation, respectively.

Exhibit 2: Three-stage DCF valuation of base business (excludes DORIA cash flows)

€m

Sum of DCF for forecast period to 2026

389.5

Sum of DCF for growth 2027 to 2031 (transition period)

250.2

Terminal value

556.7

Enterprise value

1,196.4

Net debt at 30 September 2020

38.1

Value of equity of base business

1,158.3

Value per share of base business (€)

20.66

Discount rate

10%

Terminal growth rate

2%

Number of shares outstanding (m)

56.07

Source: Edison Investment Research

Exhibit 3 ROVI sum-of-the-parts valuation

Value (€m)

Value per share (€)

DCF of base business

1,196.4

21.34

rNPV of DORIA

414.3

7.39

Net debt at 30 September 2020

38.1

0.68

SOTP valuation

1,572.6

28.05

Source: Edison Investment Research

Exhibit 4: DORIA net present value

Indication

Launch

Peak sales ($m)

Value
(€m)

Probability

rNPV
(€m)

rNPV per share (€)

NPV DORIA US

Schizophrenia

2022

236

305.7

75%

224.8

4.01

NPV DORIA Europe

Schizophrenia

2021

176

256.4

75%

189.6

3.38

Source: Edison Investment Research. Note: $1.19/€

Exhibit 5: Financial summary

Accounts: IFRS; year end 31 December; €m

 

2016

2017

2018

2019

2020e

2021e

PROFIT & LOSS

 

 

 

 

 

 

 

Hibor revenue

 

79.7

83.9

91.3

96.8

100.1

93.4

Enoxaparin revenue

 

0.0

1.5

30.2

80.9

106.7

122.8

Other (Pharma & Manufacturing)

 

185.5

192.1

183.3

204.8

195.8

210.3

Total revenues

 

265.2

277.4

304.8

382.5

402.6

426.5

Cost of sales

 

(112.0)

(110.2)

(128.6)

(166.6)

(173.1)

(187.2)

Gross profit

 

153.1

167.2

176.2

215.9

229.5

239.3

Gross margin %

 

57.8%

60.3%

57.8%

56.4%

57.0%

56.1%

SG&A (expenses)

 

(101.9)

(108.5)

(113.2)

(125.5)

(124.8)

(150.5)

R&D costs

 

(17.5)

(28.3)

(32.4)

(29.3)

(24.8)

(17.0)

Other income/(expense)

 

5.6

(0.6)

(1.1)

(0.2)

0.0

0.0

EBITDA (reported)

 

39.3

29.9

29.5

60.9

79.9

71.7

Depreciation and amortisation

 

(11.0)

(11.5)

(12.0)

(18.2)

(19.4)

(20.0)

Normalised Operating Income

 

30.7

21.2

20.0

46.5

64.8

56.1

Reported Operating Income

 

28.3

18.4

17.5

42.6

60.5

51.7

Operating Margin %

 

10.7%

6.6%

5.7%

11.2%

15.0%

12.1%

Finance income/(expense)

 

(0.5)

(0.9)

(0.7)

(0.9)

(1.5)

(1.7)

Exceptionals and adjustments

 

0.0

0.0

0.0

0.0

0.0

0.0

Normalised PBT

 

30.3

20.3

19.2

45.6

63.3

54.5

Reported PBT

 

27.9

17.5

16.7

41.9

59.0

50.1

Income tax expense (includes exceptionals)

 

(1.8)

(0.3)

1.2

(2.6)

(5.8)

(5.2)

Normalised net income

 

28.5

20.0

20.4

43.0

57.5

49.2

Reported net income

 

26.1

17.2

17.9

39.3

53.2

44.9

Basic average number of shares, m

 

49.0

50.0

53.0

56.1

56.1

56.1

Basic EPS (€)

 

0.53

0.34

0.34

0.70

0.95

0.80

Normalised EPS (€)

 

0.58

0.40

0.38

0.77

1.03

0.88

Dividend per share (€)

 

0.18

0.12

0.08

0.18

0.24

0.20

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

82.8

89.1

95.8

131.6

138.2

143.1

Goodwill

 

0.0

0.0

0.0

0.0

0.0

0.0

Intangible assets

 

24.9

27.1

34.7

45.1

50.7

51.3

Other non-current assets

 

13.1

14.1

18.2

16.6

16.6

16.6

Total non-current assets

 

120.8

130.2

148.7

193.3

205.6

211.0

Cash and equivalents

 

41.4

40.7

95.5

67.4

13.9

27.9

Inventories

 

67.4

75.5

94.9

158.8

222.9

230.8

Trade and other receivables

 

53.8

49.7

60.2

81.5

88.2

87.6

Other current assets

 

4.5

2.2

3.5

10.1

10.1

10.1

Total current assets

 

167.1

168.2

254.0

317.9

335.2

356.4

Non-current loans and borrowings

 

20.8

27.0

16.6

72.1

68.2

66.5

Other non-current liabilities

 

7.2

6.4

11.1

4.2

3.7

3.2

Total non-current liabilities

 

28.0

33.5

27.7

82.1

77.7

75.5

Trade and other payables

 

59.9

52.9

68.2

91.9

94.9

92.3

Current loans and borrowings

 

13.0

16.2

17.6

12.7

3.9

1.7

Other current liabilities

 

3.6

4.1

1.7

2.1

2.1

2.1

Total current liabilities

 

76.4

73.2

87.5

106.7

100.9

96.1

Equity attributable to company

 

183.4

191.7

287.5

322.4

362.3

395.9

CASHFLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

 

27.9

17.5

16.7

41.9

59.0

50.1

Depreciation and amortisation

 

11.0

11.5

12.0

18.2

19.4

20.0

Share based payments

 

0.0

0.0

0.0

0.0

0.0

0.0

Other adjustments

 

(2.7)

(1.2)

7.4

(0.4)

1.5

1.7

Movements in working capital

 

12.7

(9.8)

(24.4)

(63.7)

(68.4)

(10.3)

Interest paid / received

 

0.0

0.0

0.0

(0.1)

(2.1)

(1.8)

Income taxes paid

 

(3.4)

0.1

(3.1)

(8.1)

(5.8)

(5.2)

Cash from operations (CFO)

 

45.5

18.0

8.5

(9.0)

3.5

54.4

Capex

 

(18.1)

(19.9)

(26.5)

(40.5)

(31.7)

(25.5)

Acquisitions & disposals net

 

0.0

0.0

0.0

0.0

0.0

0.0

Other investing activities

 

1.7

0.7

0.1

0.1

0.7

0.1

Cash used in investing activities (CFIA)

 

(16.3)

(19.2)

(26.2)

(40.5)

(31.0)

(25.3)

Net proceeds from issue of shares

 

(0.5)

0.5

88.0

0.2

0.0

0.0

Movements in debt

 

(9.7)

9.0

(9.2)

25.8

(12.7)

(3.9)

Other financing activities

 

(6.9)

(9.0)

(6.3)

(4.5)

(13.3)

(11.2)

Cash from financing activities (CFF)

 

(17.1)

0.5

72.5

21.4

(26.0)

(15.1)

Cash and equivalents at beginning of period

 

29.3

41.4

40.7

95.5

67.4

13.9

Increase/(decrease) in cash and equivalents

 

12.1

(0.7)

54.8

(28.1)

(53.5)

13.9

Cash and equivalents at end of period

 

41.4

40.7

95.5

67.4

13.9

27.9

Net (debt) cash

 

7.6

(2.5)

61.3

(17.4)

(58.2)

(40.3)

Source: Company accounts, Edison Investment Research


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This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison, in consideration of a fee payable by Laboratorios Farmacéuticos ROVI. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Laboratorios Farmacéuticos ROVI and prepared and issued by Edison, in consideration of a fee payable by Laboratorios Farmacéuticos ROVI. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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